Correlation Between Oil and Premier Insurance

Can any of the company-specific risk be diversified away by investing in both Oil and Premier Insurance at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Oil and Premier Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Oil and Gas and Premier Insurance, you can compare the effects of market volatilities on Oil and Premier Insurance and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Oil with a short position of Premier Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Premier Insurance.

Diversification Opportunities for Oil and Premier Insurance

-0.67

Correlation Coefficient

Oil  Premier Insurance

Excellent diversification

The 3 months correlation between Oil and Premier is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Premier Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Insurance and Oil is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Oil and Gas are associated (or correlated) with Premier Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Insurance has no effect on the direction of Oil i.e., Oil and Premier Insurance go up and down completely randomly.

Pair Corralation between Oil and Premier Insurance

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.87 times more return on investment than Premier Insurance. However, Oil and Gas is 1.14 times less risky than Premier Insurance. It trades about 0.36 of its potential returns per unit of risk. Premier Insurance is currently generating about 0.05 per unit of risk. If you would invest  17,953  in Oil and Gas on September 27, 2024 and sell it today you would earn a total of  5,060  from holding Oil and Gas or generate 28.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Oil and Gas  vs.  Premier Insurance

Oil and Gas

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Premier Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Oil and Premier Insurance

The main advantage of trading using opposite Oil and Premier Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, Premier Insurance can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Premier Insurance will offset losses from the drop in Premier Insurance's long position.

The idea behind Oil and Gas and Premier Insurance pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.